A California property owner transfers title into a revocable living trust for estate planning purposes. The property carries an existing deed of trust containing a due-on-sale clause. Under federal law, may the lender accelerate the loan based on this transfer?
Correct Answer
C) No, the Garn-St. Germain Act prohibits acceleration when title is transferred to a living trust in which the borrower remains a beneficiary and continues to occupy the property
The Garn-St. Germain Depository Institutions Act of 1982 (12 U.S.C. §1701j-3) expressly prohibits lenders from enforcing due-on-sale clauses against transfers into an inter vivos (living) trust where: (1) the borrower is and remains a beneficiary of the trust, and (2) the borrower continues to occupy the property as a principal residence. Both conditions must be satisfied. Because a revocable living trust meets these criteria when the transferring owner retains beneficial interest and occupancy, the lender cannot accelerate the loan solely on the basis of this transfer.
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